Keep in mind that this is just one currency pair. If this works for other pairs (which it may not), the total return could give me a very viable trading strategy.

The Rules of this Backtest

Pin Bars are touted by some online educators as simple trading signals that almost guarantee profits.

But nothing could be further from the truth.

They need to appear in the right place to be effective. Even then, your results will vary by how good you are at picking the right setups. This means that you need to get a feel for the price action before the Pin Bar and use your discretion before you enter a trade.

That said, I've tried to make my entry criteria as concrete as possible.

Here are the rules for version 2 of my trading strategy.

The complete backtesting results for all the pairs I tested are available in Level 2 of the TraderEvo Program.

1% risk on each trade

Looking for strong momentum in direction of trend before pin bar

Tail of pin bar has to be at about 2/3 of total body

Enter as soon as candle closes

Set and forget, no moving stops

Stop loss about 5 pips above/below pin bar

Take profit at next major support/resistance level

Pin bar should print on previous S/R level or poke out of consolidation area.

1 position per trade, no stacking

Must have minimum 1R available

If there are no reference points to set take profit, set it at 1R + 5 pips

Here's an example of a good short.

Results Breakdown

Once I have a good overall win rate and return, it's time to dive into some simple optimizations. An easy way to get this data is to throw it into TradingStats. But you can also use Excel.

Here what I discovered…

Day of the Week

The first thing I look for is if there is any correlation between day of the week and losses.

This graph shows that I should avoid Mondays because the return vs risk is very low. Every other weekday looks good, so I'm going to take trades on those days.

I'll monitor my live trading results to see if this actually lines up in live trading, but this is a good starting point.

Hour of Day

Next, let's see if there are any times of the day that I need to avoid.

As you can see, the time between 1900 GMT and 2300 GMT are times when I shouldn't enter trades. This equates to between 12:00 pm and 4:00 pm Pacific Time.

This makes sense because this is when New York is winding down and Asia is gearing up.

Max R Analysis

Finally, I want to find out how much profit I'm potentially leaving on the table. In order to figure this out, I'm going to do a Max R Analysis to see the maximum R that I could have got out of every winning trade.

Here are the results:

This graph shows me that I'm actually leaving a lot of potential profit on the table. The average maximum profit on all my winning trades was 6.7R.

I can use this information to potentially increase my profit targets and make more per trade. Instead of targeting a minimum of 1R, I will consider targeting a minimum of 2R.

I'll also have to look at the screenshots of these trades and figure out if there's a good way to trail a stop loss on these trades. I could use a support/resistance trailing stop or an indicator like the Parabolic SAR.

Conclusion

I'm sharing these results to show you the process of it takes to truly understand your trading strategy and develop rock-solid confidence in it.

All too many times, websites or courses show you one video on how to trade a strategy and expect you to trade it successfully.

That's impossible.

Just like any other skill, you need to start small and practice it, in order to become proficient. You can either do that by losing money in the live markets, or build a solid foundation through backtesting and forward testing.

If your Trading Personality matches a trending, swing trading strategy, then this strategy could be for you.

To get step-by-step tutorials that show you the entire process of backtesting and forward testing, join TraderEvo.

Disclaimer: Some links on this page are affiliate links. We do make a commission if you purchase through these links, but it does not cost you anything extra and we only promote products and services that we personally use and wholeheartedly believe in. A portion of the proceeds are donated to my charity partners.

About Hugh Kimura

Hi, my mission with Trading Heroes is to share the tools, strategies and mindset upgrades that can help you create more freedom in your life through trading, so you can go out and cross off at least 80% of your bucket list items before you die. Download this PDF to get started:

Hi, my name is Hugh Kimura and my mission with Trading Heroes is to share the tools, strategies and mindset upgrades that can help you create more freedom in your life through trading, so you can go out and cross off at least 80% of your bucket list items before you die. Learn more…

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